Headhunters scout Yahoo employees, while big shareholder urges deal

The pressure racheted up on Yahoo Tuesday as its second largest institutional shareholder spoke encouragingly of a sale to Microsoft and headhunters circled the beleaguered Internet giant with job offers.

"I've been pretty much around the Yahoo campus all day today," said Bruce Brown, managing partner at Daversa Partners, which specializes in recruiting high-level executives.

"There continues to be a supply problem of really high-quality people and there are some great people at Yahoo," said David Mather, managing partner of Battalia Winston and co-head of the firm's technology recruiting. "We are about to do a search where they will be dead in our sights."

Microsoft's unsolicited $44.6 billion bid for Yahoo has created turmoil for the Sunnyvale Internet company - and a tantalizing opportunity for recruiters of everyone from top managers to rank-and-file engineers and sales people.

"Generally speaking, they are viewed as having desirable experience," said Aaron Lapat, a managing director at J. Robert Scott who hires executives for smaller, venture-backed companies.

Yahoo rejected Microsoft's $31 per share bid on Monday, but left the door open for a higher offer. It also began handing out pink slips to 1,000 of its 14,300 employees in a company-wide layoff that was first announced on Jan. 29.

"There is a sense of uncertainty," said Brown. "The company seems to be coming apart at the seams.

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Yahoo reiterated an earlier statement that its board is "evaluating all of its strategic options."

Major shareholders who own stakes in both Yahoo and Microsoft have been increasingly vocal about their concern about the deal.

In a note to investors, Legg Mason's legendary portfolio manager Bill Miller said, "We think it will be hard for Yahoo to come up with alternatives that deliver more value than Microsoft will ultimately be willing to pay."

Miller said the fund had met with Microsoft chief executive officer Steve Ballmer and spoken to Jerry Yang, Yahoo's CEO, after the bid was announced.

Miller called the deal "a strategic imperative" for Microsoft and observed that Yahoo "is in a tough spot" if it wants to remain independent. But Microsoft will need to enhance its offer of $31 a share, Miller predicted. Yahoo's stock averaged above the current offer price for all of 2004, he noted.

Legg Mason holds 80 million shares of Yahoo and 8 million of Microsoft.

Microsoft said in a statement that the company "is a disciplined acquirer and we believe that our proposal is full and fair. We are confident that moving forward promptly to consummate a transaction is in the best interests of all parties."

In another development portending a possible tender offer or effort by Microsoft to replace Yahoo's board of directors, a newspaper reported that Microsoft has retained Innisfree M&A. Innisfree manages proxy battles and tender offers.